Asked by Kimberly Carter on Jun 11, 2024
Verified
Assume Gloria is initially in equilibrium and that X and Y are normal goods for her. Then the price of X falls. For Gloria to move to a new equilibrium point her consumption of
A) X must remain constant, but her consumption of Y must decrease.
B) X must decrease.
C) X must increase.
D) both X and Y must decrease.
Equilibrium
The state in which market supply and demand balance each other, resulting in stable prices.
Normal Goods
Goods for which demand increases when consumer income rises, and decreases when consumer income falls.
Consumption
The use of goods and services by households or individuals, constituting one of the primary components of an economy's aggregate demand.
- Examine the impact of fluctuations in prices on the buying habits of consumers and market balance.
Verified Answer
HG
Helene GartiJun 13, 2024
Final Answer :
C
Explanation :
When the price of a normal good (X) falls, the consumer (Gloria) will typically buy more of that good because it has become relatively cheaper compared to other goods, leading to an increase in the consumption of X. This is due to the income and substitution effects working in the same direction for a normal good.
Learning Objectives
- Examine the impact of fluctuations in prices on the buying habits of consumers and market balance.